The automatic exchange of financial information (CRS/Chapter 20.1 of the Tax Code) is here to stay: changes in reporting requirements in format 5.06

Every year since 2018 (when Government Decree No. 693 of 16 June 2018 came into force), the Federal Tax Service (FTS) has been consistently extending the scope of the CRS rules (the OECD Standard for Automatic Exchange of Financial Account Information, Chapter 20.1 of the Russian Tax Code), including requirements relating to the electronic reporting format.

By 31 May 2023 financial market organisations ("FMOs") must provide processed data for the 2022 reporting period in accordance with the new reporting format (version 5.06) prescribed by the Federal Tax Service and the published XSD schema.

The updated reporting format contains a number of new features, including new elements designed to strengthen control by the FTS over the quality of data collected by FMOs and processes and procedures put in place by FMOs in accordance with Chapter 20.1 of the Tax Code.

In view of the soon approaching reporting deadlines and the fines for non-compliance with the CRS rules, it is extremely important for FMOs to bring all their internal processes and procedures into line with the format 5.06 requirements and to configure IT systems to ensure the timely submission of good-quality data to the FTS and eliminate the risk of fines being imposed by the tax authority.

Summary of key changes

1. Mandatory checking of C-type accounts and other special accounts

In view of the introduction of new types of accounts in 2022 for settlements with non-residents, those accounts may be considered as reportable accounts for reporting purposes.

In particular, C-type accounts[1] (or other special accounts opened in connection with special economic measures) are to be reported using a separate element inserted by the FTS — "C-type account (or other special account opened in connection with special economic measures)" (AccountTypeC). No specific list is given of accounts other than C-type accounts that might fall within this category. FMOs will therefore need to analyse other special accounts to ensure that they are correctly reported.

2. Checking of contracts that ceased to be reportable in the current reporting period (Unreported Accounts)

To enable the FTS to check that information submitted is complete, a new optional element has been introduced: "Contract that ceased to be reportable in the reporting period" (UnreportedAccount).
The introduction of this new element means that FMOs will need to analyse the list of customer contracts that fall within the requirements of the element. Since, however, no detailed criteria are prescribed for identifying such accounts, FMOs will have to devise their own methodology for identifying accounts of this kind.

3. Extension of the requirements for the element "Results of request of a contract (account or equivalent) holder who is an individual with attributes of connection to a foreign state offering ‘citizenship/residence by investment' programmes".

The list of jurisdictions that offer "citizenship/residence by investment programmes" has been extended to include Turkey.
The new code "05" for this element may be used if a customer has confirmed that citizenship/tax residence of a state (territory) was obtained through a "citizenship/residence by investment" programme and that he is not a tax resident of any other foreign state (territory). This change addresses a scenario that was not covered in the previous version of the format and facilitates accurate reporting of the circumstances of an FMO’s customers.
Customers with "citizenship/residence by investment" programmes must undergo certain verification procedures with an FMO.

4. Foreign tax numbers (TIN): new controls and checks

The FTS has made a number of changes affecting the reporting of information regarding foreign tax numbers:

• it has updated the list of codes denoting the reason for not submitting the foreign tax identification number of a contract (account or equivalent) holder who is an individual (ReasonCodeInd) by adding the new code "07"[2]
• it has added the new element "State (territory) of tax residence for which TIN information is provided" (ResCountryCodeRepeat). This element is intended for verification of the jurisdiction indicated as having issued the TIN.

The TIN is to be entered for each state of tax residence indicated in the ResCountryCode element (other than tax residence of Russia or where a person is not a tax resident of any state). In the absence of a TIN, however, the "Foreign identification document" (DUL) element is mandatory for all accounts other than a dormant or undocumented account (DormantAccount and UndocumentedAccount). And a check is made on each individual TIN value.

This once again underlines the special attention paid by the FTS to the correct submission of TINs and relevant data, which requires additional work on the part of FMOs.

5. Additional requirements

Format 5.06 introduces additional requirements for FMOs with respect to certain elements:

(1) "Transliteration Type" (TranslitType) (An individual’s name in Latin script) is now mandatory for new agreements for the 2022 reporting period.

(2) A clarification has been added for the element "Payments/receipts on contract (account or equivalent)" (Payment) — it is mandatory if payments/receipts occurred on a contract (account).

(3) The element "Type of contract (account or equivalent)" (AcctContractType) has become mandatory. This means that, to be included in reports, all accounts must be classified and the appropriate contract (account) type code must be entered.

How can B1 help?

Although CRS compliance legislation / Chapter 20.1 of the Tax Code was introduced several years ago, periodic changes in the provisions of the Decree and reporting formats and the practicalities of complying with the current requirements continue to throw up many questions.

B1's team of experts has developed unique expertise and practical experience in addressing the full range of issues involved in configuring processes and procedures at FMOs, preparing and submitting annual reports, assessing the impact of the requirements on business activities and optimising expenditure on maintaining the CRS compliance system itself, which may offer competitive advantages in doing business.

We are happy to help address the finer details of the requirements and develop and/or provide solutions on any current issues relating to compliance with CRS requirements by FMOs, including by advising on approaches to bringing current processes and procedures into line with CRS requirements/Chapter 20.1 of the Tax Code, assisting with the preparation and submission of CRS reports and providing support in raising the efficiency of CRS compliance, including report preparation.

Our services may include:

• Preparation of reports for the purposes of Chapter 20.1 of the Tax Code, including support in collecting data for the creation of a report, automatic data checking and conversion to XML format. Our assistance also includes comprehensive technical support if errors are detected when submitting reports/adjustments.
• Chapter 20.1 of the Tax Code (CRS) — performance review (health check) of an FMO’s current internal controls/procedures.
• Methodological support in bringing processes and procedures into line with current and new requirements of Chapter 20.1 of the Tax Code (CRS).
• Development and/or provision of solutions relating to compliance by an FMO with the requirements of Chapter 20.1 of the Tax Code (CRS), including solutions for checking TIN formats and structures.
• Advisory support on issues relating to compliance by an FMO with the requirements of Chapter 20.1 of the Tax Code (CRS) which arise from time to time in the reporting period.
• Support with optimisation of the CRS compliance process, for example as part of the reporting process, to reduce workload and improve CRS compliance quality.